Government-owned real estate to generate $1 billion
in the next two years through sale of unused properties
By FRANCES RYAN, LAWSON D. THURSTON for CB
Vol.: 34 / No.
Page: 01, 20
For sale by government
New land laws and regulations facilitate disposal
of more than 2.2 million square meters
of government-owned real estate
as government disposes of these assets
For sale by government
New land laws and regulations facilitate disposal
of more than 2.2 million square meters
of government-owned real estate
as government disposes of these assets
than 2.2 million square meters of government land and property is
expected to change hands through either sale or acquisitions within the
next couple of years, CARIBBEAN BUSINESS discovered. This government
real-estate bonanza, based on current or planned transactions from five
government agencies, is worth anywhere from $500 million to more than
$1 billion and will help generate new economic activity worth millions
Public officers polled agreed most of this recent
real-estate activity is the result of two main factors. Firstly, new
land laws and regulations to expedite the process by which agencies
convert idle or abandoned properties into cash. And second, a shift in
attitude toward government real estate, which now is considered a
valuable tool in the overall management of government assets.
the success of turning this land and property into cash will depend
greatly on government agencies’ ability to develop and maintain
accurate inventories. Surprisingly, all of this recent real-estate
activity is taking place without an accurate government real-estate
Introduced four years ago, the federal Government
Accounting Standards Board rule, known as GASB-34, dictates the way
state, local and county governments prepare their financial statements.
This includes the way government agencies have to prepare and
depreciate their capital assets inventory. Still, most local agencies
in charge of real-estate assets do not have accurate inventories. The
Department of Transportation & Public Works (DTOP by its Spanish
acronym), the largest real-estate titleholder agency, is actively
engaged in developing new projects but has not been able to update its
When asked, agency heads tend to dismiss
the question by stating that either they’re working on it or that it’s
a complicated matter. “You need to know precisely what you have in
order to manage it properly, but that has not always been the case,”
said Juan Vaquer director of the Land Administration. “In our case,
since we depend 100% on our land to generate our agency’s income, we
have come to know how important accurate inventories are and to keep
them updated and current. This agency has always maintained a detailed
inventory of its properties and we have a good geographical information
system (GIS) to manage it. Historically, public corporations, because
their bonds are backed by their assets, have done a better job of this
than central government agencies.”
If and when agencies get their
real-estate inventory up to date, industry experts believe their
financial gains can be substantially increased while managing assets
more effectively. “Economic activity generated from real-estate
transactions will undoubtedly represent an important economic injection
into the local economy. Gains will be realized in different ways from
making agencies more self-reliant instead of depending on public funds,
or by funding initiatives that will generate ongoing economic
activity,” explained Leila Hernández Umpierre, acting executive
director of the Public Buildings Administration (PBA). “Most
importantly, I think we’re seeing a positive change in attitude toward
running more efficient government agencies and managing assets more
Four years ago, CARIBBEAN BUSINESS (CB, June 6
2002) did research on this matter and estimated there were more than 88
million square meters across the island, or approximately 22,389 cuerdas (one cuerda equals 0.97 acre) of idle or abandoned government property with an estimated market value of more than $7 billion.
New legislation fuels government real-estate bonanza
addition to a new attitude toward effective real estate management,
fueling this potential real-estate bonanza are recent changes in
legislation such as amendments to Law 97, which among other things,
allows the Public Building Authority to convert, sell or lease
properties to the private sector to generate income. Also recently,
DTOP, the government’s largest real-estate titleholder, will be able to
secure project permits on all of its projects within 45 days. This will
expedite construction of new facilities, highways, mixed-used
properties, appropriations, land swaps or relocation of structures.
part of its agency overhaul, the Puerto Rico Industrial Development Co.
(Pridco) is aggressively pursuing long-term leasing opportunities on
all of its industrial properties. This will not only result in a
sizeable and expedient reduction of vacant industrial parks but will
add to the agency’s projected $24 million in payroll savings annually.
reducing our property inventory, we will cut on maintenance, payroll
and equipment costs among other expenses,” said Alfredo Pérez Zapata,
Pridco’s executive assistant director of infrastructure and
development. “This reflects a significant change in our management
philosophy to become more agile within an increasingly competitive
The Land Authority (LA), on the other hand,
instead of getting rid of land is quickly moving to restore its
original land reserve of 100,000 cuerdas to guarantee
availability for future agricultural use. Its real-estate management
program allows it to sell land inventory to raise funds to continue
buying reserve land.
Government real-estate deals run the gamut
from developing a small parking lot to DTOP’s Corridor of Knowledge
being developed in partnership with the University of Puerto Rico.
Real-estate experts predict prices will continue to go up thus
positioning the island’s largest real-estate holder, the government of
Puerto Rico, in a good bargaining position.
“If you’re the owner
of the land, you could find yourself in a very good position. The
opposite is also true if you or an agency needs to buy real estate for
a particular development. It’s a matter of supply and demand and
real-estate prices will vary according to a number of factors from
location, projected use, and activity to market demand and interest
rate. The price range is extensive going from one cuerda of
land as low as $5,000 up to as much as $100,000 or higher depending on
the projected use of the land,” explained David Ouviña, a certified
real-estate appraiser, regarding the government’s plan to dispose of
valuable real estate.
“Worldwide real-estate prices are going up
dictated by demand and increased mobility of people within an
increasingly global economy. People and businesses can simply choose
where in the world they’d like to live or do business. Puerto Rico is
not exempt from global trends, especially given the very limited amount
of land available to develop both commercial and residential projects.
Prices are bound to go up,” continued Ouviña, who added government
agencies must be careful in not getting rid of properties they may need
in the future. “It’ll be harder and more expensive to acquire them
Granted, a large portion of the available land cannot be
sold because it is either in reserve, destined for specific uses or
simply not useful for any major development, explained Land
Administration’s Vaquer who added: “Not everything you see on the books
Pridco shifts from quantity to quality
Pridco, the goal is twofold. Firstly, to move its industrial inventory
from quantity to quality and to strategically develop fewer but better
industrial parks, putting all its properties to better use. This will
entail developing, and redeveloping choice properties and eliminating
properties from its inventory, which do not serve high-tech industries.
Secondly, and although Pridco also owns land, its real-estate
management efforts will focus on eliminating unused or obsolete
Chief among its inventory-reduction
strategies is Pridco’s plan to bring down the number of industrial
parks from 200 to 50, a 75% reduction, over the long term. This will
not only facilitate building availability to the private sector but
will also allow Pridco to capitalize on its assets while reducing
maintenance costs. In all, it will allow it to zero in on quality
state-of-the-art industrial parks for high-tech industries.
continuation of Pridco’s overhaul, which has trimmed down its workforce
from 650 to 330, the accelerated real-estate inventory liquidation will
further contribute to the agency’s cost savings and revenue generation
plan. Pridco’s goal is to lower its headcount to 235 by the end of the
“Our real-estate inventory is comprised of 824 industrial
buildings, which constitutes a total of 1,639 rentable units. For the
current fiscal year ending June 30, 2007, Pridco assigned $5 million
for the maintenance of its properties including permanent improvements,
which is an annual projected amount,” said Pérez Zapata. He added that
maintenance efforts cover a total of 25.1 million square feet of
industrial building space, of which approximately 19.1 million square
feet is currently leased.
Building lease rates are based on a
10-year contract, which ranges from $2 to $6 a square foot per year for
the first five years and from $2.45 to $6.45 per square foot per year
for the other half of the lease. These rates are for standard buildings
that have an average ceiling height of 12 feet to 16 feet. Custom-built
buildings with higher ceiling heights (20 feet to 30 feet) command a
higher square footage price.
Pridco’s leasing map is divided into
five zones and rates vary accordingly. The general rule is that areas
with higher unemployment typically have lower square-foot rates. This
was designed to encourage companies to establish within high
unemployment zones. Current vacant building space is approximately six
million square feet, of which 4.8 million square feet is under
negotiations to be leased.
“Regarding our land-development
efforts, we continue to be aggressive and focused on developing choice
properties with state-of-the-art technology and infrastructure. Next in
the pipeline are two industrial parks in Dorado and Guayama; continued
land development in Moca and Aguadilla with acquisition of land for a
joint project with Hewlett-Packard. The combined investment of these
projects total about $31 million over the next couple of years,” said
Pérez Zapata. These projects will be an addition to Pridco’s land
inventory which, as of May 2006, totaled 7,700 cuerdas spread out over 1,416 land parcels. An estimated 78% of Pridco’s land is developed.
newly established office of Real Estate Strategic Development will help
identify properties that can be disposed of. The new office has
initiated a preliminary study to help identify which properties to
eliminate from its inventory. It has already targeted 42 cuerdas
considered to be highly valuable for commercial use. “The objective is
to make sites available and facilitate access to the private sector
while at the same time capitalizing on properties, which were otherwise
idle and not producing any income,” said José Vargas, Pridco’s director
of strategic real-estate development. Requests to buy land from Pridco
are reviewed on an ongoing basis and evaluated based on site use,
environmental impact and financial condition of the buyer among other
’For rent’ sign up
Meanwhile, the Public
Building Authority (PBA) has put its ‘For Rent’ sign up on several
agency properties that will be converted to multiuse facilities.
land parcels valued at more than $11 million and thousands of square
feet of available office space spread throughout 578 structures around
the island, the PBA is sitting on a small pot of gold if it is able to
rent most of its empty office space. Its goal is to reach 85% to 100%
occupancy within the next two years, up from its current approximately
50%. It will also sell land on a case-by-case basis, explained Leila
Hernández Umpierre, the PBA’s acting executive director.
very excited about changes brought by Law 97. We used to depend 100% on
government funds and now are moving quickly to maximize existing
inventory to generate revenue. This will increase our ability to
service our other agency clients better,” said Hernández Umpierre.
“We’re finalizing our property inventory and evaluating sales and
marketing initiatives to promote our properties within the private
sector. From a competitive standpoint, we are offering quality office
space at very competitive rates often much less than the current
commercial rate. Our For Rent and For Sale signs are up and we’ll be
marketing our properties aggressively.”
Since most of the
properties built by the PBA until now have been financed with funds
from government bonds, the sale of some of the structures will have to
comply with debt-repayment conditions. Meanwhile, the PBA is moving
full-speed ahead with 93 construction projects including schools,
government centers, fire stations, vocational centers, expansions and
remodeling jobs. The PBA’s construction projects will require an
investment of $445 million and will help generate 900 jobs during
Two of its top projects include opening the
40,000-square-foot government center in Comerío to be occupied
primarily by other government agencies and the 60,000-square-foot
mixed-use government center in Aibonito, available for lease beginning
in December, which will feature ample parking and commercial space on
the lower level. The Aibonito and Comerío centers are an addition to
the PBA’s existing 39 government centers with a combined 296,496 square
feet. The PBA services the building needs of the Corrections, Health,
Police, Fire and Education departments.
Land Administration with a vision of the future
Vaquer, of the Land Administration, the challenge is to continue
strengthening the agency, which maintains a land inventory for diverse
development purposes to guarantee access to land for projects that will
generate economic development now or in the future.
One important challenge facing the administration is its dwindling land inventory, currently at 18,000 cuerdas,
in stark contrast to the original 60,000 acquired by the administration
when it was established in 1962. “Now more than ever, we’ll review
long-term leasing agreements as a good option to generate revenue and
remain vigilant of how we use our land resources. We can structure
leasing agreements from 20 years to as long as 50 years if need be and
will continue to acquire land in line with our vision of the future,”
explained Vaquer. The administration has a $25 million fund to buy land
Agency projects have varied greatly from
facilitating the land of the new San Juan Center, where the José M.
Agrelot Coliseum is located and where over 3,000 housing units have
been built, to the development of the Camuy Caves in partnership with
other relevant agencies to the ownership of important natural resources
such as the Tortugueros Lagoon.
But one of Vaquer’s main concerns
is to protect the agency’s ability to reserve a land inventory for
future generations. “Too often we forget that this is a very small
island and we use up land as if it were unlimited. In Puerto Rico, we
need to strike a balance, thinking more about the long term and being
smarter about how we use land now. Sometimes acquiring land for the use
of generations to come may be more appropriate than what others are
considering in the short term,” mentioned the Land Administration
executive. “As we look to our precious, and very limited, land space to
promote economic activity, agency heads now charged with this
responsibility and the government as a whole must be extremely careful
not to get rid of land that should be available for future growth.”
quickly referred to the Land Administration’s intervention to acquire
the site of the original El Conquistador Hotel in Fajardo when it
closed in 1988. “It was our explicit intention to secure the land for
future redevelopment as another hotel and that site became the location
for the new El Conquistador Hotel & Resort, which generates
hundreds of jobs and contributes to the local economy. It was the
administration’s job to have that vision of the future in the case of
El Conquistador to protect the land for what came next,” explained
Contrary to other real-estate holding agencies, which are
now beginning to have more flexible land management rules, the
administration does not have to focus on one particular area and can
expropriate, acquire, sell and lease real estate in a more expedient
manner without the intervention of the Department of Justice.
of the administration pipeline projects include a parking and office
development near the Coliseum and a lease option for the land lot
adjacent to Hacienda’s south parking garage.
DTOP focuses on Tren Urbano
the largest titleholder of the majority of government land and
properties, DTOP has one of the most challenging tasks when it comes to
government real-estate management.
“The situation is very
complicated when trying to identify HTA’s road construction remnants or
vacant public school buildings. Records change on an ongoing basis,”
said Liz Meléndez, director of the Urban Development Office at DTOP
when asked about remnants and any records of vacant schools on its
books. DTOP does have a unit-by-unit record of every school, building,
parcel, land remnant and other properties that go back to 2002. The
record is outdated, complicated and not very practical.
Department of Education (DE) did confirm it has a total of 1,013
properties and land lots not in use. Interim Secretary of Auxiliary
Services José Berdecía indicated this number could vary due to a number
of reasons. A total of 1,525 schools will be available for next
DTOP Secretary Gabriel Alcaraz said a great deal of
real-estate development emphasis is being given to three major
initiatives including Ciudad Mayor, Ciudad Red and Mayagüez 2010.
first phase of Ciudad Red, an integrated development to populate areas
surrounding the Tren Urbano, will attract a total of $637 million from
the private sector for the development of eight major multi-use
projects around the Domenech, Martínez Nadal, Roosevelt, Hato Rey,
Sagrado Corazón and Cupey train stations. Most projects on Ciudad Red
will start construction later this year and will conclude at different
times before May 2008. DTOP’s projected income from this initiative
will be close to $47 million. Additional economic activity will come
from approximately 1.1 million square feet and 178,000 square feet in
office and retail space, respectively.
“The idea is to bring
people to the area to create demand for products and services, and
ultimately increase train ridership,” explained DTOP’s Alcaraz, who
confirmed a total 1,311 housing units will also be built during Ciudad
Red’s first phase.
Ciudad Red’s second phase will kick off with requests for proposals on five additional, smaller development projects of one cuerda or less. Proposals will be issued later this month.
Land Authority to reach 100,000 cuerdas
under the Department of Agriculture, the Land Authority (LA) has been
charged with the task of increasing its land inventory from its current
93,000 cuerdas to 100,000 to meet Gov. Acevedo Vilá’s
commitment to agricultural development. This would bring the agency’s
land reserve back to its original 100,000 cuerdas when it was
first established in 1941. Before he can do that, the LA’s executive
director Luis F. Soto will put between 2,000 and 2,500 cuerdas
on the block within the next two years to raise some of the funds it
needs to buy additional land to fulfill its land reserve goal. He
estimates the sale of this land to generate between $10 million and
$12.5 million, based on an average $5,000 per cuerda.
idea is to secure a good land reserve for agricultural purposes for
generations to come,” said Soto, stating the LA generates about $5
million a year in lease revenue, helping keep the agency afloat without
public funds. Currently, 70% of its land inventory or 65,100 cuerdas is leased.
of the land under the authority’s management is along the perimeter of
the island. Extending from Hatillo to Toa Baja in the northwest;
Carolina to Yabucoa in the southeast, Arroyo to Ponce in the south, and
going southwest to Guánica, Lajas, Cabo Rojo, San Germán and Aguada,”
Lease rates vary depending on the type of project involved and can range from as low as $50 per cuerda per year to a high $450 per cuerda
not including applicable municipal taxes. However, since most of the
land contracts are agriculture related, Law 225, P.R. Agriculture Tax
incentives law, allows for municipal tax exemption on certified
Soto added: “Our main focus is on leasing
property for agriculture related projects. However, we can also lease
or sell land that can be used for such other purposes as community
initiatives, housing, public schools and recreational purposes.”
typical lease contract from the LA runs for five years. If a tenant
forfeits its contract before the end of its term, a penalty equivalent
to six months of leasing payments is assessed. Anyone can apply to
lease land from the authority, however, it must comply with an initial
application, orientation and formal proposal prior to approval.
Last year, the LA sold approximately 100 cuerdas compared with 1,500 cuerdas
sold the previous year, of which 1,300 went to the Department of
Natural & Environmental Resources under the Herencia 100,000
Total land: 93,000 cuerdas
Long-term leases: 65,100 cuerdas
Rent income: $5 million
Projected additional income from land sales: $10 million to $12.5 million
Total land: 18,000 cuerdas
Long-term leases: 3,000 cuerdas
Long-term revenue FY 2005: Approximately $8 million
Short-term leases or reserved for future use: 15,000 cuerdas
Short-term revenue FY 2005: Approximately $15.4 million
Department of Transportation & Public Works
Phase I Land Development Urban Train
Private-sector investment: $637 million
Revenue area: $46.7 million, 22.9 cuerdas (mixed use)
Office space: 1.1 million square feet
Retail space: 178,000 square feet
Land (2002): 6,260 units
Property (2002): 1,300 units
Public Buildings Authority
Government Centers 53
Court centers 36
Police stations 103
Public buildings 578 units
Construction projects 93
Investment new projects $445 million
New construction jobs 900
Leasing goal 85% to 100% in two years
Total land: 7,700 cuerdas
Total land developed: 6,000 cuerdas
Buildings leased: 19.1 million square feet
Buildings available: 1.2 million square feet
Payroll savings: $24 million annually
Projected income from long-term building sales: $100 million-plus
1 cuerda = 0.97 acres
Puerto Rico Industrial Development Co.
Rental Zones for Industrial Building
Zone 1 Height
12’ to 16’: $6.00 sq. ft. $6.45 sq. ft.
20’: $7.00 sq. ft. $7.45 sq. ft.
30’: $8.00 sq. ft. $8.45 sq. ft.
Zone 2 Height
12’ to 16’: $4.25 sq. ft. $4.70 sq. ft.
20’: $4.95 sq. ft. $5.40 sq. ft.
30’: $5.65 sq. ft. $6.10 sq. ft.
Zone 3 Height
12’ to 16’: $3.50 sq. ft. $3.95 sq. ft.
20’: $4.10 sq. ft. $4.55 sq. ft.
30’: $4.65 sq. ft. $5.10 sq. ft.
Zone 4 Height
12’ to 16’: $3.00 sq. ft. $3.45 sq. ft.
20’: $3.50 sq. ft. $3.95 sq. ft.
30’ $4.00 sq. ft. $4.45 sq. ft.
Zone 5 Height
12’ to 16’: $2.00 sq. ft. $2.45 sq. ft.
20’: $2.35 sq. ft. $2.80 sq. ft.
30’: $2.65 sq. ft. $3.10 sq. ft.
- Rental rates shown apply only to existing typical buildings.
rates for typical and general purpose buildings in construction as of
July 1, 2003 will be negotiated upon new rents shown.
- Rental rates for buildings for nonindustrial use will be 50 cents higher than the established rates herewith.
rates for special buildings will be computed according to construction
cost, plus the market value of the land, using 1% over prime interest